Transaction Monitoring
Transaction monitoring refers to the processes and systems used to observe client transactional activity in real-time or through periodic reviews to identify unusual patterns or specific red flags that may indicate suspicious activity requiring further investigation.
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Examples
The bank’s transaction monitoring system flagged an unusually large cash deposit inconsistent with the client’s normal activity. The bank therefore reviews their account in search of any red flags. They also ask the customer for a Source of Funds proof, to ensure that the deposit was obtained legitimately and not through money laundering or similar financial crimes.
In this case, the person sends a SoF proof that showcases they recently inherited their parents’ business. Their account is therefore updated but their risk profile remains the same as no new risks have been introduced.
FAQ
What are common red flags in transaction monitoring?
Red flags can include unusual volumes or frequencies, transactions inconsistent with client profile, and unusual counterparties.
How can AI and machine learning enhance transaction monitoring?
AI can identify complex patterns, adapt to new risks, and reduce false positives compared to rules-based monitoring.
What actions are taken when suspicious activity is identified?
Suspicious activity is investigated and if warranted, reported to authorities via Suspicious Activity Reports (SARs).
